it allows you to upload your image or point to it. then it calculates a unique fingerprint of it and compares to fingerprints of all the images they indexed.
so to search for images they do not use meta data, they use actual data. and that is really new. thus they find same or very similar images (usually derived from the original)
and even allow you conveniently compare it and see how uses it.
it is a very good tool for photographers and artists, who want to find who might use their images, with or without their permission. and it is only one of the many uses.
they have firefox plug-in too.
i tried one of my photographs and find that whole lot of bustards use it. and it was easy to see that it is actually my image.
they explain all of it a lot better http://tineye.com/login